First Direct mortgage customers are having to wait four weeks for interviews to apply for the bank's lifetime tracker mortgage following a deluge of applications.

The bank has seen a 40% increase in calls about mortgages following a reduction of its application fee to £99 at the beginning of July.

The lifetime tracker repayment loan, which has proved particularly popular, is set at 1.79% above base rate until the entire loan is paid off for those needing to borrow 65% loan to value (LTV), 2.29% above base rate for those on a 75% LTV, or 3.49% above base for those on a 85% LTV.

Andrew Hagger, of financial product comparison website moneynet, said: "When it comes to tracker mortgages, First Direct are pretty much number one. The application fee swings it and the fact that there are no exit penalties also helps."

The bank is likely to change the rates on its mortgage range in September, but although Rebecca Hirst, a spokeswoman for First Direct, confirmed that customers were having to wait up to a month to get an interview with the bank's mortgage staff, she added: "We don't want people to panic about this. We're sending letters to everyone that has rung up about the mortgages confirming that, providing they qualify, they will get the interest rate they initially called about."

She added that First Direct was recruiting more staff to deal with the rush in new business and had drafted in help from its sister bank, HSBC, "so the callback queue is not growing any more".

The bank could face a further surge in new business following the Bank of England's quarterly inflation report last week, which suggested it was in no hurry to raise interest rates from their record low of 0.5%. Governor Mervyn King said that while the VAT rise planned for the beginning of next year would keep inflation above 2% in 2011, the rate was likely to drop below the 2% target in 2012. This will help to reduce pressure for a rise in the base rate.

Prolonged low interest rates have also encouraged families investing on behalf of their children to swamp Northern Rock with new business. Two weeks ago the bank launched its Little Rock children's savings account paying a market-beating rate of 5% fixed until September 2013, but it withdrew the account just one week later.

One outraged grandparent who contacted us said he was now researching other children's savings schemes to see if he could improve on the "appalling" rates they are currently earning: "A key difference is that [Northern Rock] is publicly owned whereas the current investments are in private corporations. It is doubly frustrating to be misled by a financial body which my taxes have helped to keep alive in its near death situation."

A spokeswoman for Northern Rock said: "It was a popular account and the issue had to be balanced against internal targets."

She said the bank was now working on a second issue of the account which will be launched shortly, though there is not indication yet as to what the interest rate will be.